Is the Recovery Act Working?

On Tuesday both the United States Vice President’s office and the nonpartisan Congressional Budget Office issued separate reports about the impact of the Recovery Act of 2009.

In general the CBO report was favorable. Its estimates of how much the Recovery Act will increase deficits over 10 years increased by some $27 billion compared to its original estimates (issued when the law was passed), but it concluded that the economy would be worse off without the stimulus package. It also estimates that the law increased gross domestic product by between 1.7% and 4.5% in the most recent quarter (from April to June). And that the law lowered the unemployment rate by between 0.7 percentage points and 1.8 percentage points and increased the number of people employed by between 1.4 million and 3.3 million.

The Vice President’s report was even more positive. It claimed, for example, that because of Recovery Act investments the US is on track to cut the cost of solar power in half by 2015. It also claimed that, “With $8 billion dollars in funding, the Recovery Act is beginning to make high-speed rail reality across the country.” That might be a stretch. High-speed rail will require billions more in non-federal investment to become a reality.

The Recovery Act has indeed helped kick start significant research projects and led to the groundbreaking on several factories for advanced energy products. But to meet its long-term goals of creating a strong and vibrant economy based on clean energy, what’s most important is not necessarily what’s happened so far, but what will happen in the next couple of years. Will the investments started with the Recovery Act continue? Or will they dry up under budgetary pressures? What’s more, will incentives be put in place, such as a price on carbon, help drive market adoption of new green technologies?

For a close analysis of the impact of the Recovery Act, check out this review in the current issue of Technology Review magazine.